Southland

Southland

Tim Driscoll is the owner/operator of this 197 effective ha Southland farm. For the 2018/19 season this is made up of 186 ha in permanent pasture and 11 ha of new grass ready for grazing from late December.

The 18/19 budget is based on 599 Friesian cows (3.00 cows per ha), producing 300,000 kg Milksolids (501 kg per cow and 1,523 per ha). No crop is grown on the milking area. Cows come home from winter grazing and calve directly onto pasture. A 50/50 mix of PKE and corn gluten pellets is fed in shed during the spring and early summer at the rate of 1 kg per cow per day.

This season, the milking area is supported by 83 ha of support land (69 ha leased and 14 ha owned). This area provides all young stock grazing, silage, and some winter grazing. This 2018 winter is the last season winter crop will be used on the support block. Only baleage and pasture will be used for wintering from 2019.

The budget provided is considered to be conservative with the advance price used being about $0.70 less than the company forecast (as at 31/5/2018), and budgeted costs are generous. The surplus generated will be applied to additional debt repayment, taxation and further purchase of Fonterra shares.

The longer term challenge is still...."can this farm achieve 3.0 cows per ha, 1,500 kg MS per ha for close to $3.00 per kg MS cost structure?"

2018/19 Numbers at a glance

Total KgMS

Cows Milked

Hectares (effective)

Net Dairy Cash Income($/kgMS)

Total Farm Working Expenses($/KgMS)

Total Operating Expenses ($/kgMS)

Dairy Operating Profit($/ha)

300,000

599

197

$6.57

$3.45

$3.88

$4,261

2018-19 half-yearly update: December 2018

Six months into the season this farm has provided an update on how they are tracking, what, if any major challenges to their budgets they are facing and plans for managing any variances for the rest of the season.

Season to date 5-12-2018

Rainfall to the end of November, (for the calendar year), was 1030 mm which is up on the district average of 880-920 mm. It has been evenly spread so soil conditions have been reasonable through winter and spring.

A mild winter and reasonable weather during calving along with a few more cows and a more concentrated calving have contributed production being up about 8% on last season, (6% on budget).

November income was up 20% on budget. Farm working expenses are up on budget, mainly R & M, although additional baleage has been made/bought in preparation for more animals wintered on the milking area next year.

Looking forward

Milksolids per day are a little behind last year on a daily basis partly due to feed quality as a result of some recent very high growth rates, (100 kg DM/ha/day). Current pasture cover is similar to last season and on target at 2,100-2,200 kg DM/ha.

Cow condition is good and again similar to this time last year. Baleage on hand is on target and imported supplements of PKE/corn gluten pellet are on budget.

Production of 300,000 for the season is still well on target, (which is 2% up on last season), so continued monitoring of costs will be critical to ensuring the gains from the budgeted production increase will not be eroded.

Plans to manage risks

The main risks to the business at present are the softening milk price, managing pasture quality with the current very high growth rates and of course if it turns dry in the summer like last year.

Current feed budgets show that existing reserves, pasture cover and planned imported feed should secure reasonable summer, early autumn production. Focus needs to be on regaining control of pasture quality over the next couple of weeks, and that is happening with topping and managing post grazing residuals.

There is always scope to reduce stocking rate once pregnancy testing is done should there be any extreme weather events.

The updated cash flow is still looking strong despite the softening in milk price. Being conservative on milk price when budgeting, ($4.36 per kg MS), has given a good buffer against this.

Feed and Pasture

Production to date, (5-12-2018) is 127,972 which is 9,800 kg MS, (8.3%), up on last season, (294,000 kg). The season’s budget is for 300,000 kg MS, (6,000 kg more).

Have used less 25% less nitrogen to date due to the good pasture growth. Applications so far are 85 kg N per ha.

Currently following cows with light application to push feed through into the summer.

Supplements fed are on budget although extra PKE was fed during early November due to the wet and cold conditions.

Have been able to contract some of the feed at less than the budgeted $250 per t PKE and $410 per t corn gluten pellets.

Made 300 bales silage on the milking platform so far.

1300 bales made on support land with 600 still to make.

Purchased 340 bales silage in anticipation of getting resource consent to milk on additional 11 ha purchased 2016, and so wintering 100-200 more cows at home.

Calving and reproduction

Three week submission rate is 84% which is slightly down on the previous year.

After 5 ½ weeks mating the returns are similar to last year. 17-18 NRR was 71%.

Other points of interest

Milk revenue to the end of November is $130,000 above budget as the kg milksolids is well up and the budget was conservatively based on $4.36 per kg MS advance. This is still lower than the current milk price forecast.

Demand was high for bull calves so calf sales are up slightly.

R & M costs will be up slightly as the vet race at the support block has been upgraded so cows can be run through. This was not in the original budget.

The consent application to milk another 100 cows with and additional 14 ha and increase overall stocking rate to 3.2 is still in progress and the cost to date is $15,000 and climbing. This would be the biggest variation in the budget, which only had $5,550 allocated.

Shed repairs are up $13,000 on budget due to additional R & M and a service for the platform.

Building repairs are up - unplanned additional storage for PKE.

Baleage making/purchased up due to 340 extra bales of baleage made/purchased for wintering next season. This will be offset by a feed inventory adjustment.

Have been able to make some capital expenditure out of cash flow, including a calf feeder and a grain silo. Plan to purchase another tractor so more work can be done earlier and so be more timely.

Bio-security & Environment

Additional fencing has been done as a result of the M Bovis situation in Southland. One wire fences 1.5 m from the boundary have been erected where needed which has cost about $2,000. This was not in the budget.

Liaise with neighbour on the support block so that stock are not in boundary paddocks at the same time.

Still focused on getting consent for increasing stocking rate and milking area.

The budget for next year will include allocation for fencing and riparian planting.

The farm was converted from sheep 6 years ago so infrastructure is relatively new and is compliant.

Management decisions

Maximise pasture quality and utilisation by monitoring pasture cover and use of feed budgeting/spring rotation planner to ensure targets for feed cover met.

Ensure targets for cow condition are met by doing BCS throughout the season.

Dry off based on pasture cover and cow condition.

Minimise pasture damage.

No crop grown on milking area and plan to have no crop grown on support land after the 2018 winter.

Feed corn gluten pellet/PKE at 600-700 kg DM per cow.

All heifer grazing is on leased or owned support blocks.

Attention is given to ensuring young stock achieve or all recommended live weight targets. Young stock are well grown. At the end of May 2018 the R 3 cows were only 15 kg lighter than the mature herd.

Cows come home from wintering and fed pasture and baleage. Use 3 standoff areas for springers.

Labour management – good communication so staff aware of farm policies and can implement them.

Cost management - use a realistic budget. Southland has little variance in production. By monitoring budget closely, we can react if needed. Control the controllable. We can control our production and our costs, but we can’t control what we get paid. We do know our numbers inside out. In saying that we aren’t perfect and still have plenty of areas to improve. Our focus is being as efficient as possible with per cow and per hectare production and keeping our costs to a sustainable low level.

Key success factors

Prepare own budgets, review, update regularly so always aware of financial position and can take advantage of opportunities as they arise.

Prioritise debt repayment.

Focus on basics - have a simple system that is easily implemented.

Long term goals/vision.

Have good management team – bankers/accountants, consultants and utilise expertise.

2018/19 Forecast Budget

Based on 300,000 kg MS @ $4.36 per kg MS advance, 294,000 kg MS @ $1.75 deferred (includes payment in June 2018 for May 2018 milk produced ($110,000) and a 294000 MS @ $1.40), $0.19 per share dividend on 280,00 shares. This is net of DairyNZ levy on 300,000 kg MS @ 3.6 c per kg MS. ** This milk income is the farmers best estimate of their likely net milk sales. It may or may not be out of date based on new information from dairy companies. It does not necessarily reflect DairyNZ's milk price forecast.

Metricheck and pregnancy testing and BCS carried out. Rotavac half MA cows. Treat all clinical mastitis cases. MgCl and basic minerals through dosatron all year with Selenium in spring through to christmas. Calving, anionic salts to springers with MgO. Milkers and colostrums MgO and limeflour through dispenser via in shed feeding and PKE trailer. The wholeherd is treated with dry cow therapy. Metabolic diseases were an issue last calving so the animal health budget is up on previous years to address this.

54,000

0.18

90

274

Breeding and herd improvement

7-9 weeks AB, no synchrony used. No herd testing done.

30,000

0.10

50

152

Farm dairy

Chemicals, rubberware - normal running costs.

13,000

0.04

22

66

Electricity

Rotary cowshed. Hot washes once a day, milking twice a day all season.

(farm dairy, water supply)

22,700

0.08

38

115

Supplements made

1600 bales @$30 per bale (250 kg bales). This is across all land farmed (Milking area, 14 ha support land owned and 69 ha support land leased. Supplements made are up on previous years as now have to make enough to winter young stock on the leased support land. 1600 bales is the amount needed to get herd and young stock through winter and spring with no crop.

(incl. Contractors)

48,000

0.16

80

244

Supplements purchased

Purchased feed is budgeted to be 312 t PKE @ $250/t delivered and 170 t corn gluten pellets @ $410 per t landed. This is fed to cows as 50/50 mix with PKE at 1 kg per cow per day through spring and early summer. PKE fed is also fed via trailers in paddock as required. At $6.50+ per kg milk price breakeven on purchased feed is $8,500 or 14 kg MS per cow. Costs include $5,000 for a small amount of hay purchased July.

450 cows @ $30 per head per week for 10 weeks. Total cost includes cartage of $12,000. R 3 are being wintered separately from the main herd. R 2 heifers and 50 cows are wintered on the on the support blocks.

147,000

0.49

245

746

Support block lease

Lease 69 ha nearby so now fully self contained for young stock grazing. 65 ha used for young stock grazing and supplements and 4 ha is used for supplements only.

64,600

0.22

108

328

Fertiliser

125 t maintenance fertiliser @ $400/t plus 130 t N products $540/t (Sulphate of Ammonia is used for first application in spring, then rest is urea). Individually soil tested paddocks in 2015 and designed a program around that. Minimum P applied only. Maintenance K & S. Fertiliser has not been cut back in the downturn but some higher fertility paddocks were missed out in previous years. Fertiliser is all applied by the farm staff.

(incl. N)

123,000

0.41

205

624

Regrassing & cropping

3 ha of Fodder beet on the support block to winter R 2 heifers will not be grown Autumn 2019. These regrassing costs include the costs to regrass the final 3 ha of crop on the support block (being used to winter R 2 heifers in 2018), plus another 4 ha of regrassing on the support block and 23 ha on the milking platform.

20,000

0.07

33

102

Weed and pest

7,000

0.02

12

36

Vehicles & fuel

Includes fuel/oil of $24,000. Attitude to vehicles - keep bikes modern, have 2 quads and 2 x 2 wheel plus a Suzuki Escudo (old). Tractors, 90 and 100 HP between 10 and 16 years old. Up slightly on previous years as more work is now being done with the addtion of support blocks.

53,000

0.18

88

269

R&M

Plant and Machinery and tools = $5,000, races/tracks = $2,000, fences etc = $1,800, water supply = $4,000, dairy shed R & M = $21,000 and drainage of $18,000. Farm conversion occured for supply commencing Spring 2012. Conversion completed to a high standard. 50 bale De Laval Rotary with milk meters. R & M high on shed possibly due to technology in shed? Haven't got to the bottom of that yet. Plant and machinery is generally old except for new fertiliser spreader 2016 and mower 2011. Have got all cultivation gear from sheep farming days. Repairs all completed through service providers. Upgrades to drains scheduled as very little has been done since conversion to Dairy so are now due. Also more required with the additonal lease land and purchased support block.

(land, buildings, plant, machinery)

75,000

0.25

125

381

Freight and general farm expenses

Includes $1,100 for protective clothing. A general cost of about $6,000 is included here as a contingency for unplanned expenditure.

8,100

0.03

14

41

Administration

Covers accountancy, computer, farm consultant, phone and general office costs. Farmer does own GST, PAYE, budgeting. Includes a one off consent payment of $5,500 relating to application for consent to milk on the additional 14 ha purchased in 2016.

18,000

0.06

30

91

Insurance

Have saved >30% of farm insurance costs 3 years ago by changing provider.

20,000

0.07

33

102

ACC

3,100

0.01

5

16

Rates

21,900

0.07

37

111

Total Farm Working Expenses

1,036,300

3.45

1,730

5,260

Cash Operating Surplus

933,200

3.11

1,558

4,737

Non-cash adjustments have been included below the cash analysis to enable fairer comparisons to be made between farms. These adjustments are not part of a cash budget but are important to fully understand the efficiency of the farm business.

$TOTAL

$/KgMS

$/COW

$/HA

Value of change in Dairy livestock

Plan to increase the number of R 1 heifers from 150 to 200. This is at IRD National Average Market Values (NAMV) for 2018 (50 heifers @ $691).

An additional 25 t DM will be carried forward as replacement for not having any winter crop on the support block for the 2019 winter.

7,500

0.02

13

38

Owned support block adjustment

Have 14 ha of support land purchased in 2016. Estimated market rental is @ $800 per ha. The land is currently being used as support land but have an application in for consent to use as milking land for 2019-20.

11,200

0.04

19

57

Depreciation

Based on 16-17 financial statements. Farm is only in 6th season from conversion so infrastructure is relatively new hence depreciation higher than on more established farms.

75,000

0.25

125

381

Dairy Gross Farm Revenue

2,004,500

6.68

3,346

10,175

Dairy Operating Expenses

1,165,000

3.88

1,945

5,914

Dairy Operating Profit

839,500

2.80

1,402

4,261

More information

Click the links below to view this farm's actual budget figures.

2017-18 Season Review

2017-18 Numbers at a glance

Financial KPI's*

Budget

Actual

Milk Production (kgMS/ha)

1,421

1,492

Milk Production (kgMS/cow)

475

496

Net Dairy Cash Income ($/kgMS)

$6.37

$6.71

Total Farm Working Expenses ($/kgMS)

$3.51

$3.34

Cash Operating Surplus/Deficit ($/kgMS)

$2.87

$3.37

Gross Farm Revenue ($/kgMS)

$6.70

$6.86

Operating Expenses ($/kgMS)

$4.01

$3.84

Operating Profit ($/ha)

$3,821

$4,529

* These KPI's are based on cash book actuals to the 31/5/2018 and estimated non-cash adjustments. The final financial performance based on financial statements may differ

Comments

The 2017 winter and spring were very favourable for the area. Mild temperatures and good sunshine hours in October/November contributed to periods of pasture growth rates of 120 kg DM/ha/day.

An extended dry period through December/January impacted supplementary feed harvested but good rainfall through late summer and into autumn meant more supplement could be made.

Production for the season was 5% up on budget (14,721 kg MS) and 10% up on the previous season.

This better than budgeted milk production has had a significant dilution effect on farm working expenses. Total farm working expenses were similar to budget (only $2,271 more than the $982,167 budgeted), but FWE per kg MS finished at $3.34 which was 17% below the $3.54 budgeted. This is most satisfactory given the costs include one off items that relate to incorporating the 14 ha of owned support land into the milking area.

Farm Income is up 10% due to production being up on budget and the milk price received being $0.33 per kg MS more than budget.

Other points of interest

Rainfall the farm for the season was 850 mm which is 20 mm less than the NIWA 10 year average of 870 mm for the district.

Less PKE/DDG was used during the spring, however, an additional 60 t PKE was contracted just prior to Christmas to cover the dry period in December/January.

Less nitrogen was applied because of the dry period in December and January. Total for the season was 175 kg N per ha compared with about 225 in the budget.

Fertiliser costs were 30% less than budget because not all maintenance phosphate was applied due to unsuitable soil conditions in late autumn.

Mating for 2017-18 went really well with results from the scans showing a 10% improvement in mating performance for the herd this season. The six week in calf rate for the 2017-18 mating is 80%, and the not in calf rate is 9%.

Cow condition going in to the winter was good (4.7-4.8 body condition score). The herd went into the summer about 10-15 kg heavier partly due to more favourable weather conditions over the winter spring but also from using higher energy concentrates during the spring.

2016-17 Season Review

2016-17 Numbers at a glance

Financial KPI's*

Budget

Actual

Physical KPI's

2016/17

Net Dairy Cash Income($/kgMS)

$4.87

$6.60

Milk Production(kgMS/ha)

1,356

Total Farm Working Expenses($/kgMS)

$3.40

$3.15

Pasture and Crop Eaten(t DM/ha)

13

Cash Operating Surplus/Deficit($/kgMS)

$1.45

$3.45

Imported Supplements & Dry CowGrazing (% of total feed eaten)

17%

Gross Farm Revenue($/kgMS)

$4.86

$6.83

Six Week In-Calf Rate*A=Actual E=Estimated

69% A*

Operating Expenses($/kgMS)

$3.80

$3.54

First Calvers on Farm End of Season(% of first calvers at start of season)

82%

Operating Profit($/ha)

$1,391

$3,237

Milk Solids per Labour Unit(kgMS/FTE)

102,720

*These KPI's are based on cash book actuals to 31 May 2017 and estimated non-cash adjustments. The final financial performance based on financial statements may differ.

Comments

The 16-17 season throughout a lot of Southland was a very good. Pasture eaten for this farm was 13 t DM per ha for the year (up 10% on the 15-16 season). This was due to a combination of more pasture grown and better spring utilisation. Milksolids produced was up 6.8%.

The farm business plan changed part way through the year with the lease of 32 ha of support land in November and the purchase in October of 14 ha of neighbouring land (used as support for now but to be added to the milking area in future).

Careful monitoring and planning meant that the total farm working expenses (FWE) for the year were $9,000 less than budget for the whole season so with the increase in milksolids the FWE for the season was $3.15 per kg MS compared with the budget of $3.40).